Tuesday, January 20, 2015

BOJ maintains QQE target and cuts inflation forecast

Japan's central bank maintained its target of increasing the monetary base by an annual 80 trillion yen but trimmed its inflation forecasts for the next financial year due to the fall in crude oil prices, further delaying the prospect of reaching its 2 percent inflation target.
The Bank of Japan (BOJ), which expanded its stimulus in October and repeated its pledge of continuing with "quantitative and qualitative easing" (QQE) to reach the 2 percent inflation target, also slashed its growth forecast for the current 2014/15 financial year, which ends March 31, but raised its forecast for growth in the 2015 and 2016 fiscal years.
The BOJ repeated its view that Japan's economy was recovering "moderately as a trend" and "is expected to continue its moderate recovery" as the decline in demand following the increase in taxes in April last year is expected to dissipate.
In its latest forecast, a majority of the BOJ policy board members on average see Japan's economy contracting by 0.5 percent in fiscal 2014, sharply down from the forecast in October of growth of 0.5 percent.
But for fiscal 2015, which begins April 1, Japan's economy is seen expanding by an average of 2.1 percent, up from the previous forecast of 1.5 percent, and for fiscal 2016 Gross Domestic Product is seen expanding by 1.6 percent, up from the previous forecast of 1.2 percent.
The forecast for consumer price inflation for the current fiscal year was trimmed to 2.9 percent from the previous forecast of 3.2 percent. Excluding the effect of the hike in consumer taxes to 8 percent, inflation is expected at 0.9 percent, down from the previous forecast of 1.2 percent.
In fiscal 2015 headline inflation of only 1.0 percent is expected, down from the previous forecast of 2.4 percent while inflation in fiscal 2016 is seen rising to 2.2 percent, down from 2.8 percent previously.
While the BOJ maintained its aggressive policy stance - which includes purchasing Japanese government bonds, exchange traded funds, real estate investment trusts, commercial paper and corporate bonds - the central bank extended by one year some of its specific measures, such as a fund that supports financial institutions affected by the East Japan Earthquake, that are aimed at stimulating bank lending.
This includes the Growth-Supporting Funding Facility, which the BOJ also doubled to 2 trillion yen and increased the maximum amount outstanding to 10 trillion yen from 7 trillion.
Japan's headline inflation rate eased to 2.4 percent in November from 2.9 percent in October while its GDP contracted by 0.5 percent in the third quarter from the second quarter for an annual decline of 1.2 percent, up from shrinkage of 0.2 percent in the second quarter.